Ann: Investor Roadshow Presentation, page-122

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nordesmic

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01/10/15

22:05

Post #: 16101260
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Originally posted by Autosime ↑

Hi Striebs
I think shale will add to reserves and production for ever , but it's the degree of production that is the clincher. It's like conventional oil fields , the cheapest may have a capex and opex of 10 dollars a barrel but the average may be closer to 35. Similarly with shale oil , when oil was 100 and interest rates near zero , it made a lot of shale oil economically , although a fair bit was marginal. The Shale oil revolution is a U.S. Phenomenon and oil prices have gone from 105 to 45 . This not only wipes off a large part of supply that becomes unprofitable , but it also makes the ROI on the better shale less economical. What is missed is that most of the revenue in the oil game goes back into exploration. So we have two factors at work , the money for reinvestment from current producers has essentially decreased by 80% . This has been the reduction in margins. Then we have the drying up of money raised from debt and equity markets to fund new exploration. The dollars are lack of from these sources can not be understikated. Look at the Australian market and the number of oil juniors who have blown 40 m to produce maybe 5 million of oil revenue. All this has added to production which cumulatively has been very loss making. The fugues may show oil production at 30 opex, they don't show that tl have that well producing 100 dollars was spent on buying acreage, drilling one duster and one producer. Etc etc
My point is the combination of debt that needs to be serviced and paid back , current oil prices and perceived future prices and the drying up of funds from both debt and equity markets will have a big impact. In fact the impact on Share prices of oil companies in itself has a huge impact on potential to raise funds . 1 billion dollar oil company could issue 10% of Capital and raise 100m . That some company today trading at 400m may only raise 40m . The impacts of this oil downturn will be more far reaching than people expect , so in summary I think the focus has been on increased production but not on the amount of capital sunk to achieve it.

Shale won't disappear , but a significant drop in production will occur in 12-18 months time IMO as current producers have been funded from an 80-100 oil price revenue environment with funds reinvested. Future producers will be from today's revenue which we know is much lower

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US shale is an always an interesting discussion. One of the best dissections I've seen is in the video below. It's about 2 years old but I think everything in it still applies. @eshmun I think is something you in particular will like.

DLS Price at posting: 51.0¢ Sentiment: Buy Disclosure: Held
4 Upvote

0 Great analysis

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Ann: Investor Roadshow Presentation, page-122

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